Bloomberg. China May Give National CDMA Network to Unicom
By Peter Hannam at Bloomberg News
25 March 1999
China may give its second-largest telecommunications carrier,
China Unicom, a license to operate a nationwide mobile phone
network based on the U.S.-made CDMA technology, officials
and company executives said.
U.S. companies hope the move will generate big orders for
U.S.-made equipment and handsets, though some analysts
doubt Unicom will land many sales soon in a market dominated
by China Telecom, which uses Europe's rival GSM phone
technology.
"The government is considering this plan, but there is no formal
decision yet," said Wang Jianhong, a spokesman for Unicom.
At stake is access to the world's fastest-growing major market
for mobile phones. China's cell phone subscriber base is
projected to jump 80% this year to 45 million, surpassing Japan
and making it the world's second-biggest mobile telephony
market after the U.S.
Telecommunications is also a pivotal issue in China's efforts to
enter the World Trade Organization. The U.S. and other trading
partners want China to lift its ban on foreign participation in
telecommunications operations.
China Telecom (H.K.), the Hong Kong listed arm of China
Telecom, rose 5 HK cents today to HK$12.85.
The technical rivalry between the GSM and CDMA standards
adds another twist to the issue.
For more than two years, the central government refused to give
commercial licenses to CDMA networks in four cities built by
Motorola Inc., Lucent Technologies Inc., Samsung Electronics
Co., and Northern Telecom Ltd.
The four companies use the "code division multiple access" or
CDMA technology developed by San Diego, Calif.- based
Qualcomm Inc.
With these projects on hold, China Telecom relied mostly on
"global system for mobile communications," or GSM
technology, to develop the market. Finland's Nokia AB and
Sweden's Ericsson AB, two GSM phone makers, now count
China - including Hong Kong - as their biggest market
worldwide.
The U.S., which has been pushing Beijing to approve a CDMA
network in an attempt to boost exports and trim a trade deficit
that topped $56.9 billion last year, may see diminishing returns
for the effort. Ericsson today agreed to buy Qualcomm's CDMA
infrastructure unit for an undisclosed sum.
To be sure, China's telecommunications industry is in flux.
China Telecom itself is expected to be broken up into
independent paging, fixed-line, mobile and satellite divisions
this year.
Still, approval for a CDMA commercial network is expected to
come during Premier Zhu Rongji's visit to the U.S. from April 8
to 15, company executives said.
Even then, it's unlikely that U.S. or other foreign suppliers will
reap big sales in the short term.
For one thing, China Unicom will have to put up most of the
money if it does get approved to set up a nationwide network.
In the past, the company had to turn to foreign partners for
about $1.5 billion in capital to help it take just five% of the cell
phone market.
That investment, which saw Unicom teaming up indirectly with
foreign companies such as France Telecom SA and Deutsche
Telekom AG, is now under a cloud. China said last year that the
investments were technically illegal, freezing further growth of
such ventures.
"It is hard for me to tell what's going to happen on the
investment side," said Li Shu, an official with the project
cooperation department of Unicom. "I think we'll get support
from the government."
Officials from the Ministry of Information Industry, which
regulates China's telecommunications industry, were
unavailable for comment.
A Beijing-based executive with Samsung Electronics, who
declined to be named, said it could take at least a year for
Unicom to arrange equipment supplies and regulations even
after it wins approval.
The executive said China Unicom may set up rival CDMA
networks in the four cities where pilot projects are already
operating, because these use a different frequency than
Unicom.
The four trial CDMA networks, in Beijing, Shanghai, Xi'an and
Panyu in Guangdong province, have been built by a joint
venture between China Telecom and Great Wall Mobile
Communications Co., a company controlled by the Chinese
military.
Some analysts said they were skeptical of the benefits of
CDMA for China.
" Why bother?" said Joe Locke, a telecom analyst with
ABN-Amro in Hong Kong. "China gets the best deals on GSM
because they buy so much of it. They can use cost controls to
bid down the price."
"All of Unicom's foreign partners also use GSM and none of
them would be interested in investing in a CDMA network,"
Locke said.
Analysts were split on the impact a Unicom CDMA network
would have on China Telecom's market share.
"This will definitely hurt China Telecom," said William Li, an
analyst in Hong Kong at Celestial Asia. "Nonetheless, the
market is big enough and growing quickly enough to support
several large companies."
Yet China Telecom could benefit from increased competition,
even though it may take as much as three years for Unicom to
get CDMA up and running nationwide, said Daniel
Widdicombe, managing director for telecommunications at Bear
Stearns Asia Ltd. in Hong Kong.
"The barriers to entry are huge," Widdicombe said, pointing to
political obstacles and Unicom's own poor brand image in
China. "Nothing beats being the incumbent in a market that's
hard to get into."
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